Gold maintains strength on sharp rally

Gold (daily chart) has maintained much of its strength on the general rally that has been in place since the beginning of the year. This rally has brought gold off its three-year low of 1178 at the very end of 2013 up to a high of 1332 earlier this week, for a full 13% advance, before pulling back slightly. The noted end-of-year low at 1178 formed a double-bottom pattern with the previous major low at 1180 in June of 2013. Just last week, the precious metal advanced further off that double-bottom to breakout above its key 200-day moving average – a situation that has not occurred for an entire year since February 2013.

Despite a slight pullback in the rally, gold is showing signs of maintaining its recent strength on what can currently be labeled an upside correction, and is now just short of a key downtrend line that extends back to the October 2012 high near 1800. A breakout above that trend line would create the potential for a break of the long-term downtrend, with further major resistance then residing around the 1425 level. A major downside support level on any further pullback in the rally continues to reside around the 1265 price area.

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